The investigation on the Japanese optical
equipment company Olympus concluded that executives are responsible
for the $1.7bn scandal cover up but aspects of auditors’ conduct
were “not appropriate” and “questionable”.
KPMG ASZA was Olympus’s auditor until March
2009 and E&Y ShinNihon is the company’s current auditor.
The investigation over one of Japan’s largest
corporate frauds by an independent panel questioned the audit
procedure conducted by the two firms.
As for KPMG ASZA, the report admitted that
“much of the unrealised loss was accrued in the off-balance sheet
transactions such as derivatives” and it was then “extremely
difficult” to detect it.
At the same time, the panel stressed that
information handed over to the audit firm was “manipulated” and
therefore “it was difficult to detect the overall picture” of the
Nevertheless, the independent panel criticised
KPMG AZSA for allegedly not digging hard enough when inquiring on
problematic aspects of the balance sheet and when the firm did not
However, the report states the way Olympus
presented the data made it “inevitable that such discovery was not
The report also blamed auditors for having
issued “an unqualified clean opinion without in depth evaluation of
its contents” when there was a “serious conflict of opinion over
the accounting treatment by Olympus at the time of audit for the
fiscal year in March 2009”.
Current auditor, Ernst & Young ShinNihon
is criticised for allegedly allowing to record as goodwill accounts
that should have arouse doubts instead.
“We cannot conclude this was appropriate”, the
Finally, the overtake of the auditing from
KPMG AZSA to Ernst & Young ShinNihon was criticised as
“questionable” as it was considered as “nothing but a mere
formality” and the two auditing firms “did not go so far as to
touch the substantive reasons for such replacement”.
The Olympus scandal came to light after
Michael Woodford, the ousted chief executive, prompted questions
over excessive advisory payments of $687m it made in its 2008
acquisition of the UK medical equipment maker Gyrus, worth $2.2bn.
M&A advisory fees are usually about 1% to 2% of a deal’s value.
In spite of the questions over auditors’
behaviour, the independent panel who carried out the investigation
urged in its report legal action against “rotten” executives saying
that “Olympus should remove its malignant tumour and literally
Olympus has until 14 December 2011 to post its
financial results and avoid automatic delisting.